Commodity markets are in a ‘super squeeze’ — and higher prices could be here to stay
SUIXI, CHINA – DECEMBER 30: An employee works on the production line of aluminum foil at a workshop of Anhui Limu New Material Technology Co., Ltd on December 30, 2023 in Suixi County, Huaibei City, Anhui Province of China. (Photo by Li Xin/VCG via Getty Images)
Vcg | Visual China Group | Getty Images
Global commodity markets are in a “super squeeze” amid supply disruptions and lack of investment — and it’s only going to get worse as geopolitical and climate risks exacerbate the situation, HSBC said.
“For some time now we have described global commodity markets as being in a ‘super-squeeze,'” its chief economist Paul Bloxham told CNBC.
A commodity “super squeeze” is denoted by higher prices driven by supply constraints more than a robust growth in demand, he explained.
“If it’s a supply constraint that’s driving high commodity prices, it’s a very different story for global growth,” said via Zoom. Higher prices as a result of a super squeeze are “not as positive.”
“We see the deeper ‘super-squeeze’ factors on the supply-side as still set to play a key role in keeping commodity prices elevated,” he said, outlining factors like political uncertainties, climate change and the lack of investments into the green energy transition.
The super squeeze could be deeper, or more prolonged if geopolitical, climate change or energy transition related supply disruptions are larger than expected.
Paul Bloxham
HSBC chief economist
Geopolitical risks include the ongoing Israel-Hamas conflict in Gaza and the Ukraine war, which have hampered global trade, as seen in shipping disruptions from the recent Houthi attacks in the Red Sea.
Another reason is climate change, which disrupts supply chains as well as commodities supply, especially in the agricultural space.
“The super squeeze could be deeper, or more prolonged if geopolitical, climate change or energy transition related supply disruptions are larger than expected,” he added.
Lack of investments
The world’s pursuit of a net-zero carbon future is fueling demand for energy transition metals such as copper and nickel, Bloxham pointed out.
However, there are insufficient investments allocated to procuring these critical minerals, leading to a sharper supply squeeze on energy transition metals — in particular copper, aluminum and nickel, he said.
As energy transition ramps up, markets could be looking at a shortage of a slew of metals like graphite, cobalt, copper, nickel and lithium in the next decade, the Energy Transitions Commission said in a report in July.
At the recent COP28 climate change conference, more than 60 countries backed a plan to triple global renewable energy capacity by 2030, in what is largely deemed as a step forward for energy transition and a further boost in demand for metals required for that transition.
“Large-scale mining projects can take 15-20 years, and the last decade has seen a lack of investment in exploration and production for key energy transition materials,” the report said.
Annual capital investments in these metals averaged $45 billion in the last two decades, and must rise to around $70 billion each year through to 2030 to ensure an ample stream of supply, according to the ETC report.
Commodities are notoriously volatile asset classes, with a long history that is prone to a short squeeze and the current landscape points to more of the same.
Brian Luke
S&P Dow Jones Indices
Without more investment in new capacities, supply will be constrained, HSBC’s Bloxham said, adding that “for any given amount of demand,” it should be expected that commodity prices will stay more elevated than in the past.
“That seems to be playing out across many of the commodities at the moment.”
Technology could also be a gamechanger if a development came along and made it much easier to extract the metals used in the battery space, Bloxham added.
Iron ore site in Australia.
Ian Waldie | Bloomberg via Getty Images
He did not say how long it will take global commodity markets to move out of the squeeze, but one way out of it — which would also push commodity prices lower — is a “bigger and deeper [economic] downturn globally,” he said.
“Commodities are notoriously volatile asset classes, with a long history that is prone to a short squeeze and the current landscape points to more of the same,” said Brian Luke, senior director and head of commodities at S&P Dow Jones Indices. He highlighted that extreme weather events and geopolitics have also impacted the agricultural and energy commodity baskets.
Metals most impacted
Analysts say metals will likely see the most upside.
Bloxham noted that aside from clean energy metals, iron ore was also on his list due to falling inventory and a lack of investments into expanding capacity.
Iron ore has seen a price jump of over 24% in the last year, according to data from FactSet. The benchmark 62%-grade iron ore last traded at $135.48 per ton.
“The reason why [iron ore] has a sudden squeeze-up is because inventory has been very low,” said Bank of America Securities’ head of Asia -Pacific basic materials, Matty Zhao.
She noted that in spite of China’s property crisis, steel production has continued, fueling demand for iron ore and coking coal, which are integral to steelmaking.
China, which makes around 55% of the world’s steel, produced 874.7 million tons of steel in the first 10 months of 2023 — up 1.4% across the same period in 2022.
What squeeze?
While risks remain, one analyst is of the view that commodity markets are still “adequately supplied” for the most part.
“The commodity markets are currently focused on slumping demand due to the sluggish global economy. As such, there’s not too much concern about supplies,” said Arlan Suderman, chief commodities economist at financial services firm StoneX.
Oil, for one, saw an increase in global oil inventories in 2023.
Some are still hoping that a rebound in Chinese demand will help.
“A resurgence from Asia will go a long way in determining if commodities will have a breakout year,” said S&P’s Luke, adding that 2023 saw a year of unfulfilled demand from China which weighed heavily on commodity markets.
The first EV charging hub funded by the Charging and Fueling Infrastructure (CFI) Program in the Eastern US is now online in Deerfield, Massachusetts.
The town installed the region’s first DC fast chargers (four ports), along with four Level 2 chargers, at 59 North Main Street in South Deerfield.
These new charging stations, funded with $2.46 million from the CFI program, are conveniently located near Interstate 91 in Franklin County, the most rural county in Massachusetts, which serves drivers from Connecticut up to the Canadian border.
The hub also features local and regional bus stops and designated bike lanes with secure onsite bike racks. The chargers are meant to cater to everyone: from local residents and visitors to municipal EVs and commercial vehicles that service the region’s businesses, like those in food and beverage manufacturing.
Gabe Klein, executive director of the Joint Office of Energy and Transportation, sees this as a model for future projects:
Multi-modal charging hubs in communities are key to giving more people the choice to ride and drive electric. The Town of Deerfield is showing leadership in building out convenient charging infrastructure that brings new transportation choices to rural and disadvantaged communities while supporting local commerce.
In recent years, Deerfield has experienced increased climate change-driven flooding from nearby rivers, including the Deerfield River, the Connecticut River, and the Bloody Brook. The project incorporates environmental engineering designed to mitigate and adapt to the effects of flooding and climate, including the installation of permeable asphalt and rain gardens, planting of native trees, grasses, and shrubs, and the creation of new greenspace in the center of Deerfield.
The Biden-Harris administration’s CFI Grant Program is expanding EV infrastructure nationwide. It offers grants for projects that complement and expand upon the initiatives of the NEVI program in urban, rural, and disadvantaged and low-income communities. So far, the CFI Grant Program has allocated over $1 billion to nearly 100 projects across the US, encouraging private investments and expanding the EV charging network to make EV ownership more practical and convenient.
Read more: The US reaches milestone of 200,000+ public EV charging ports
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Kia’s upcoming EV4 electric sedan was just spotted testing in the US for the first time. The low-cost EV is expected to make its big debut by the end of the year. Here’s a look at the new model.
The EV4 will round out Kia’s new “EVs for all” master plan launched last year. Kia showcased three new models, the EV3, EV4, and EV5, during its first annual EV Day in October 2023.
During the event, Kia outlined its new global strategy to “lead and accelerate the EV revolution” with a wide range of models priced from $30,000 to $80,000.
Kia plans to rapidly expand its lineup with a series of smaller, lower-priced models. It launched the EV9, its first three-row electric SUV, which is already proving to be a hot seller in the US. Starting at under $55,000, the EV9 is still a great deal compared to others in its class, but Kia plans to go even lower.
The EV3 and EV4 are expected to be among the most affordable electric vehicles when they arrive in the US.
Kia’s new EV4 is now testing in the US
Ahead of its official debut, Kia’s new EV4 sedan was recently caught driving on US streets for the first time.
The latest image from KindelAuto doesn’t reveal much more than what’s been shown in the past, but the fact that it’s now testing in the US is significant.
Kia’s EV3 is already on sale in Korea, starting at around $30,000 (42.08 million won). Earlier this week, the company said its new compact SUV is now available across Europe, starting at around $38,000 (36,000 euros) with a “segment-leading range” of up to 375 miles (WLTP).
Next up will be the EV4. Kia is expected to officially reveal the new EV by the end of the year, with deliveries starting in 2025. It could be as soon as next week at the 2024 LA Auto Show.
The interior will feature Kia’s advanced new ccNC infotainment system with dual 12.3″ navigation and driver display screens. An otherwise minalimalistic design is expected inside.
Kia’s EV4 will also be available in a hatchback variant. Although the hatch is likely aimed at European buyers, it was also recently spotted testing in the US for the first time.
We will learn official prices closer to launch, but the EV4 is expected to start at around $35,000 to $40,000.
Kia is teasing five new vehicles for the US, at least one being a new EV, that will debut at the LA Auto Show next week. Will it be the EV3? EV4?
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Nissan introduced its newest EV, a sleek all-electric sedan, at the Guangzhou Auto Show this week. The N7 is the first Nissan electric vehicle under its new strategy to spark life back into the brand in China.
Nissan hopes new N7 EV can compete in China
Like most foreign automakers, Nissan is struggling to stay afloat in China as homegrown automakers, like BYD, take control of the market.
Nissan hopes to turn things around after Dongfeng Nissan, its Chinese JV, unveiled the new N7 EV sedan at the Guangzhou Auto Show on Wednesday. The N7 is the first next-gen Nissan EV aimed at China as it looks to regain ground in the world’s largest electric car market.
Nissan claims the new model will “redefine the new benchmark for China’s mainstream family pure electric sedans.” It will be the first model built on Dongfeng Nissan’s new dedicated EV platform.
The company promises the new platform offers “a stress-free driving experience, superior comfort, and a suite of intelligent technology.”
At 4,930 mm long, 1,895 mm wide, 1,487 mm tall, with a wheelbase of 2,915 mm, the N7 is slightly longer than the Tesla Model 3 (4,720 mm long, 1848 mm wide, 1,442 mm tall, 2,875 mm wheelbase).
You can see Nissan’s signature V-Motion design in the headlights and front bumpers. Inside, the N7’s infotainment system is powered by a Qualcomm Snapdragon 8295p processor for a faster, seamlessly connected system.
Nissan also partnered with smart driving tech leader Momenta to offer an advanced driver-assist system called “Navigate on Autopilot.” The N7 will be equipped with high-speed navigation NOA, city memory navigation NOA, and full-scenario intelligent parking.
The new N7 EV is set to go on sale in China in the first half of 2025 as Nissan aims to regain relevancy. Nissan’s sales in China fell 5.4% through the first nine months of 2024 after crashing 33% in 2023.
Will the N7 help Nissan reignite the brand in China, or will it continue losing ground to domestic auto brands like BYD and NIO? Let us know what you think of the electric sedan in the comments below.
Nissan isn’t the only legacy automaker developing specific EVs for China. Hyundai is launching a new AI-powered EV in China next year as it looks to counter China’s surge.
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